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Memo shows $30 billion from bailout to help small business

WASHINGTON — The Obama administration is setting aside $30 billion from the financial bailout fund for a program to encourage lending for small businesses to aid the recovery.

An internal document obtained by the Associated Press spells out how the Treasury Department plans to spend money from the fund before it expires in October 2010. The document shows $40 billion would go to consumer and business lending programs.

Of that amount, $30 billion would support lending to small companies, according to a Treasury official who spoke Friday on condition of anonymity because no final decisions on the program have been made.

President Barack Obama said in October that the administration would create an expanded business lending program, but officials have had trouble finalizing the details.

Over the past year, the financial system has stabilized with the help of billions injected into banks through the Troubled Asset Relief Program to bolster their capital — the reserves they have to protect against loan losses. But critics charge that TARP has failed to achieve its main goal: to get banks to lend more to consumers and small businesses.

TARP has been attacked as a bailout for Wall Street, allowing big banks to reap huge profits and lavish executives with bonuses. Banks have scrambled to repay the support so they can avoid government limits in areas such as executive pay.

In addition to the $30 billion to boost loans to small businesses, the administration would devote $21 billion for mortgage relief and $10 billion to support consumer loans. This would be done through a program operated with the Federal Reserve known as the Term Asset-Backed Securities Loan Facility.

Under the program, the Fed provides financing for investors to buy securities backed by auto, credit card and other consumer loans to boost credit in the areas.

The Treasury document shows that only $3 billion would be committed to provide banks with capital. That compares with $205 billion spent on what became the biggest part of TARP.

An additional $3 billion will be devoted to the Public-Private Investment Program, which already has received $27 billion in TARP commitments. This is a program between Treasury and private investment groups that are buying banks' toxic assets to encourage them to lend more.

The Treasury document projects that commitments from the $700 billion TARP program will total $550 billion. Many parts of the rescue fund are projected to get no further money.

The auto bailout program, for instance, won't grow beyond the $87 billion already committed.

The Treasury document shows that of the $482 billion committed so far from TARP, $370 billion has been disbursed. The government has received $163 billion in repayments.

That figure includes announcements this week of planned repayments from Wells Fargo and Citigroup.

Memo shows $30 billion from bailout to help small business 12/18/09 [Last modified: Friday, December 18, 2009 10:45pm]
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